Senate passes financial reform legislation
On May 20th, after several weeks of debate the Senate passed financial reform legislation. The bill, entitled ‘The Restoring American Financial Stability Act of 2010’, would impose new rules on the financial system and establish a new consumer protection agency. The bill would also establish new rules on derivatives trading. It was this section of the legislation that was a primary focus of APGA. Earlier drafts of the legislation did not provide an exemption from mandatory clearing provisions for end user hedgers such as public gas systems. The mandated clearing of all OTC transactions would require public gas systems to post initial margin and to meet potential margin calls whenever required and on little notice. APGA has argued that requiring public gas systems to clear its transactions would significantly impair that system’s hedging strategy and place an increased financial and operational burden on the communities and consumers they serve. Working with other end users, such as the American Gas Association, APGA was able to successfully include an exemption in the final bill for end user from the mandatory clearing provisions.
However, language was added to the bill that would significantly alter and potentially eliminate the ability of public gas and power systems to hedge on behalf of their customers in the over the counter derivatives market. Specifically, the bill mandates that swap dealers have a fiduciary relationship when entering into swaps with all state and local governments and instrumentalities. APGA is extremely concerned that swap dealers will be less inclined to make a deal with public gas systems if they have to act as their fiduciary. The swap dealer takes the opposite side of a transaction from the end user. Accordingly, it is inconsistent with the fundamental structure of a swap transaction to provide that the dealer should also act as a fiduciary. APGA has communicated to the Senate that the ultimate result of this provision would be that public gas systems would no longer be able to use these markets to hedge on behalf of their customers, thus subjecting them to greater price volatility and increased rates.
APGA has been working with congressional staff to fix this issue as part of a manager’s amendment that was anticipated to be offered. Unfortunately, due to time constraints the manager’s amendment was not offered. APGA will work to address the issue in the conference committee formed to resolve differences between the Senate passed bill and the financial reform legislation passed by the House last December.
Support for new natural gas service legislation
On May 27th, APGA sent a letter to Senate Majority Leader Reid in support of legislation he introduced that day entitled ‘The Clean Energy Infrastructure for Rural Communities Act of 2010.’ The legislation would expand federal loan programs to allow the Department of Agriculture to provide a federal loan to communities that want to create a public or cooperatively owned gas system. Specifically, the legislation would amend the Consolidated Farm and Rural Development Act to authorise federal loans for ‘improving the economic and environmental climate by encouraging the development and construction of infrastructure to provide access to natural gas in rural communities.’
In its letter, APGA states that the legislation would provide critical federal financial assistance to communities interested in obtaining natural gas service and that increasing the direct use of affordable and reliable natural gas provides many benefits include the reduction of greenhouse gas emissions. The letter further states that while ‘many communities, particularly small and rural areas, lack the resources and ability to develop the needed infrastructure to supply natural gas service to their residents’ and that ‘ providing financial assistance to these communities will give them the tools they need to establish a natural gas system to the benefit of their community, businesses and residents.’
Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/28052010/news_from_the_american_public_gas_association/